Schadenfreude—How the US Is Helping China Create a New Financial Order

2015-10-26If China upends the international financial system, it will be devastating to millions of unprepared Americans.

Here we have an image of a Chinese banknote, featuring Chairman Mao, followed by a seemingly incongruous German word - schadenfreude. Is there an error here?

Happily, no. We’ll begin with the word, schadenfreude, which means “harm-joy.” It’s used to express an occurrence that’s destructive, yet brings about happiness.

This would seem to be a conflict in terms, but, looked at a bit more deeply, it could be said that the killing of an enemy may mean that peace will soon prevail - and so the event brings happiness. Or, another analogy: the bulldozing of an old structure may mean that a new one - a better one - will soon be under construction.

And that’s the case here. The world’s most powerful (and most oppressive) political/economic power structure has begun to go under the bulldozer. Its replacement will hopefully be a better one.

The Brussels SWIFT system is currently the largest economic settlement system in the world. Almost all financial transfers are made possible through this system. As such, those who control SWIFT have the power to threaten financial institutions and sovereign nations that, if they don’t do as they’re told, can be denied access to the system.

The controllers of SWIFT have been far from fair in making these judgements. Much of their agenda has been provided by the Organisation for Economic Co-operation and Development (OECD), a cabal made up of many of the world’s most powerful nations, but primarily Europe and the US. The US is the heavy here and they’ve used their power to create FATCA, a means of applying draconian economic pressures on their own citizens. In doing so, they’ve also succeeded in creating a global shakedown racket aimed at financial institutions. If a bank anywhere in the world is found to have a US citizen as a client and the bank fails to regulate that client sufficiently, the bank itself is “held up” - the US imposes a massive fine on the bank.

Editor’s Note: If you have never heard of FATCA before I can’t blame you. That so few people understand what it is, is perhaps not surprising. Often, otherwise offensive government actions and institutions are given dull and opaque names to obfuscate their true purpose. Obama signed FATCA into law in 2011. To understand what this odious law that is all about, see here.

Not surprisingly, the banks of the world (other than the central banks, which are not targeted by FATCA) live in dreaded fear of making the slightest error in trying to please the US government. They’ve been learning that although FATCA claims to be aimed primarily at its non-compliant citizens, there have been other targets. The US government has used the opportunity to go after the bigger fish - the banks themselves.

Again, the reason for this success in creating this shakedown racket has hinged on US control over the levers of the international financial system - the fear in financial institutions that the US could simply end the banks’ ability to do business if they don’t pay the outrageous fines.

But this scam only works as long as there is no competitor to the US system. Should there be a free market in the transfer of money - should there be even one competitor in the world - one that does not impose economic mafia-tactics, the potency of the US’ threat would collapse. At that point, business and sovereign nations may cease their use of SWIFT and move over to the new competitor.

Cross-border Interbank Payment System (CIPS)

And here is where schadenfreude steps in. China has had their own independent settlement system in the works for some time and it has now been introduced.

But, before opening up a bottle of bubbly, it would be wise to acknowledge that full implementation may take a few years. It will begin as a means by which to settle oil and gas accounts in keeping with agreements that already exist between China and other nations. As CIPS gains strength, its use will spread outward. This is a virtual certainty, as the more it spreads, the greater the Chinese influence over such entities as the IMF.

And CIPS will not simply replace SWIFT. What will occur will be that it will be presented as a system that can work alongside SWIFT and interface with it. (e.g., if Germany wishes to have enough natural gas to heat its houses in the winter, Russia would require that the payments for Russian gas be settled through the use of CIPS.)

The final holdout will be the US, as it has so much more to lose. However, once isolated as the only country that avoids the use of CIPS, demands from China that interfacing take place will force the US to either get on board, or be unable to acquire foreign (particularly Chinese) goods.

At some point along the way, increasing numbers of the world’s banks will cease to query account applicants as to whether they hold a US passport. They will only wish to know if the applicant has access to CIPS. Over time, the FATCA shakedown will die away, as its driving force - intimidation of the world’s banks - will no longer have teeth.

Other Developments

In parallel to the creation of CIPS, China has created the Asian Infrastructure Investment Bank (AIIB). This, together with agreements with Russia and other nations (including some EU nations), has made possible the sale of oil to be settled in yuan.

The yuan has also overtaken the yen as the fourth most-used currency for international settlement. Next target: the pound, then the euro, then the US dollar.

How Will It All Shake Out?

There are two general schools of thought amongst noted contrarians and libertarians regarding China’s overriding objectives. One school has it that China is very much a part of the One World Government philosophy and their primary goal is to acquire a more powerful seat at the IMF. Having done so, they will settle in and be content to be one of the leading jurisdictions that run the world collectively.

The other school suggests that China means to become the most powerful nation in the world - to replace the US in every way as the world’s dominant nation.

My own appraisal is a combination of the two. China’s behaviour - not only their public stance, but their massive economic infrastructural development efforts indicate to me that they intend to go full-bore with their new economic infrastructure, giving them powers that rival and even overtake the EU and US. At that point, they will be unconcerned as to whether they will be welcomed into the “club” that is presently dominated by the EU and US. They will be an unstoppable freight train passing through town. The western world can either get on board, or fall by the wayside. The Chinese will prefer the former, as it would be more profitable and would avoid conflicts (both military and economic), but they will not be deterred.

At this moment in time, we’re observing a part of that effort. The old structure is being slowly bulldozed and a new structure is underway. It’s very likely that, in order to assure its success, it will be a better one - one which offers its users greater freedom. We can be certain that, like all governmental constructs, it will eventually become corrupted and be just as oppressive as the one it hopes to replace. However, in its early years (and hopefully beyond that) the people of the world will enjoy a period of increased economic freedom.

Some time ago, when I first predicted that China would create such a system, it seemed almost a fairy tale - a highly unlikely development. Yet, China has gotten there even faster than I’d expected. Let’s hope that the day when its benefits trickle down to the street level, worldwide, will also arrive more quickly than I had expected.

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